The purpose of the EKTAN is to provide intellectual food for thought on business strategy, technology, and current events, primarily in the wireless area. I am also available for more in depth consulting assignment in the telecom space. I'm currently consulting on projects and subjects that include: iDEN and CDMA technology, Nextel International, Sprint Nextel (without revealing any non-public or proprietary information), Alcatel-Lucent, and Motorola, and wireless industry dynamics, metrics and trends.

Important Info

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Copyright 2008 by Ed Ketchoyian
Some Rights Reserved under Creative Commons License
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Any personal information that I have about you, including your name, email addresses, contact info, will remain private. Period. An exception to this policy is if you explicitly authorize publication of your name and / or content in the EKTAN or the EKTAN Blog.
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NY Mets Facts or Trivia

George Herbert Walker, Jr., an uncle of President George W. Bush, was vice president and treasurer of the Mets from their founding through 1977.
-------
Answer to question below: Sid Fernandez.
What 16-game winner was relegated to bullpen duty by Manager Davey Johnson during the 1986 World Series?

April 2008

April 30, 2008

I'd like to introduce the first guest analyst to the EKTAN, Mr. Martyn Roetter, Ph.D. I met Martyn through his writing on the Gerson Lehrman Group web site and have become a big fan of his writing and analysis on the wireless industry and technology issues in general. Martyn approaches issues from a detailed and many times historical perspective, which I appreciate. He has staked out what I would characterize as a reasoned, but skeptical position regarding WiMAX. With Martyn's permission, I am republishing a recent article that he wrote on the private GLG web site. A brief bio for Martyn is at the end of the article.

Vodafone's series of
statements over time about LTE are unsurprising. They illustrate normal
and ongoing jockeying for negotiating position between and among
operators and equipment vendors, continuing uncertainties about the
demand for broadband wireless data capacity, and significant
differences between market dynamics, installed networks, and
competitive environments across the world, including among the various
properties of Vodafone itself.

Analysis:

North AmericaThe question for each operator of which next generation mobile
broadband wireless technology to deploy - and in which markets and when - will
be an outcome affected by a combination of perceptions of market demand, the
actions of competitors, the status and usage of its existing networks, the
availability and details of the offerings from vendors (network equipment and
mobile devices), the regulatory environment, its spectrum holdings, and of
course its financial situation.

Vodafone itself owns properties in markets with very different economic,
regulatory, and competitive situations. As a 3GPP operator it can follow an
upgrade path to HSPA+ which may in some markets delay the need for it to move
to LTE or any other 4G network technology, which necessarily involves a major
technological change, beyond the time when this shift becomes imperative in
other markets, or for competitors whose existing technology path may run out of
steam earlier. It should be noted that these decisions on timing depend as much
if not more on (as they should) the behavior and activities of customers and
services providers, and hence how rapidly capacity demands grow, as they do
upon the hopes and persuasive power of vendors to sell new technologies. It is
ironic that perhaps the first major deployments of LTE may occur among CDMA2000
(e.g. Verizon Wireless, Telus, and Bell Mobility in North America)
rather than among 3GPP (the GSM camp) operators if the former conclude that the
CDMA2000 upgrade path will come to a commercial dead end before HSPA does.

Allocations and assignments of spectrum will also be important for operators'
ability to introduce new network technologies. On the WiMax front there
is some movement to give mobile WiMax a chance to establish itself as a viable
technology stream prior to the anticipated emergence of LTE. For example Ofcom in the U.K. is
trying to give mobile WiMax a chance to become established against existing GSM
competitors by auctioning 2.6 GHz frequencies for mobile use later this year in
the context of a technology-neutral policy.

India is
another country in which the 2.5 GHz band may provide opportunities for mobile
WiMax to prove its worth in significant deployments, if for example the WiMax
initiative of the state-owned BSNL is fruitful in exploiting this spectrum
before other spectrum for 3G services is made available. It is nevertheless
unfortunate that WiMax advocates continue to present misleading statements
about the significance of the availability of today’s WiMax systems as a
time-to-market advantage over the later but considerably more powerful LTE,
ignoring the question of when standards for WiMax systems that can match the
performance targets of LTE will be finalized. In contrast current WiMax systems
are not different in performance in most cases (and may be somewhat superior or
inferior in others) to already widely deployed alternative technologies.
Investors assessing the relative commercial prospects for competing wireless
technology ecosystems do need to keep the laws of physics in mind as well as
business and financial considerations.

Martyn Roetter, is a
Principal at MFRConsulting, an independent consultant in the Telecom,
Information, Media, Electronics (TIME) sector, and a specialist in
global business strategy. Previously he was Vice President at Arthur D.
Little, in charge of its North American TIME practice, and Vice
President at Decision Resources, Inc., managing consulting and advisory
publications services for TIME industries. He also worked at PA
Consulting in the UK and US. He has over 25 years of experience in
advising on business strategy and technology-related issues for
vendors, service providers, financial investors, and regulators and
public policy makers. He has worked on projects in the Americas,
Europe, the Middle East, and Asia. He served as Chairman of the
Compensation Committee of the Board of Allen Telecom until its
acquisition by Andrew Corp. Current foci include Broadband wireless and
New Generation Networks, Web 2.0 techniques, mobile terminals,
regulation, and industry restructuring.

SummaryVerizon was the most successful in the 700 MHz auctions by utilizing a
multi-pronged strategy to secure a superior spectrum position for the
foreseeable future and positioning themselves to be in a position to
control their own destiny regarding the industry trend towards open
networks.

Analysis

While AT&T completed its objectives in the recently concluded 700
MHz auctions in filling out its spectrum holes, Verizon deserves kudos
for the shrewdest, most comprehensive and successful auction strategy.

1. C Block Wins: Recognizing that they lost the political battle for the open access provision for the C block to Google, Verizon won the entire C block that covered land in the continental U.S. for nationwide coverage, so that it controls how quickly it and and the wireless industry will evolve to open networks. Verizon can slow roll or fast roll, depending on whatever strategy they choose, their financial means, or competitive threats. Either way, to use a poker analogy, they have the high hand around the table, it's their bet and their fate is in their own hands regarding open access.

2. A and B block wins: For capacity augmentation for the following highest density cities / regions: Chicago, Los Angeles, Florida, Texas, and the DC through Connecticut corridor.

3. Make the Competition Pay: Lastly, as noted at Wireless Strategy, "One last tidbit: It was interesting to find that a whopping 73% of
AT&T's winning bids in the B block were placed in Rounds 26 and 27.
This is significant because Verizon placed their last bids on A and B
licenses in Round 26 in order to start their acquisition of the C block
in Round 27, so it's quite clear that Verizon's strategy was a
significant contributor to the high cost of AT&T's winnings." Indeed, per this RCR Article, "The average price per megahertz/potential
customer covered for the entire C Block was $0.76 [which Verizon dominated]. The B Block’s
average price per MHz/pop was $2.68, according to Optimal Markets Inc.
According to Verizon Wireless, the carrier paid $1.03 per MHz/pop,
compared with the auction average of $1.20."

April 28, 2008

The last newsletter was published on March 28, 2008. This issue
contains four articles, one of which has been reprinted at seekingalpha.com. My author
biography and an index of articles is at: http://seekingalpha.com/author/ed-ketchoyian.
These are practically identical to the articles here at the EKTAN, but
at Seeking Alpha, there have been some very interesting comments. In the last month, my article on Dan Hesse was included in Wikinvest.

Although I didn't go to CTIA, I've spoken to a number of colleagues
who did. The impression I get from my limited and biased sample is
that the show this year was high on professional networking
opportunities, but that the wireless industry is lacking a focus on the
next big thing. Notwithstanding the buzz on the ongoing WiMAX vs. LTE
religious war, if you are an old school wireless pro from years past,
you'd be looking for major announcements that involved spectrum, major
infrastructure equipment deals that resulted in commitments of billions
of dollars for new or upgraded technology, a blockbuster partnership
deal deal, or maybe even an iPhone-type device announcement (iPhone
derivatives, such as an iPhone "killer" don't count). None of which
happened, leaving some of the colleagues questioning their own future
in the industry.

Sprint Nextel continues to look for partners to share the cost of the
WiMAX rollout, which will undoubtedly cost several billion dollars, but
still has no takers. Given the credit markets being what they are and,
for intents and purposes, a recession in place, major deals that might
have been possible six months ago, seem like longer shots now. The
prospect of Sprint spinning off WiMAX completely to Clearwire or iDEN
or being taken over outright, given the intrinsic value of Sprint's
spectrum holdings alone, may not happen now in the short term, due to
macroeconomic conditions. This situation may end up being a blessing
in disguise for CEO Dan Hesse and any Sprint Nextel partisans who wish
for the company to remain independent; new management gets some
breathing room to turn around the company. Short of transplanting
headquarters from Kansas to a location where leadership actually has to
care about employee satisfaction because there is a market alternative
for good talent (rather than knowing that the best alternative is
working for H&R Block, Hallmark Cards, Applebees, McDonald's or
back to the farm, which has fostered a culture based on fear for one's
job security and having the right political connections over
self-initiative), or a wholesale change of entrenched management, it's
hard to envision a near term solution to the Sprint malaise with the
current lineup. I continue to be a fan of Dan Hesse and believe he is
capable, but turning around Sprint is more than a one or two person
job. If Dan Hesse is successful in turning around Sprint Nextel, then
he deserves to be enshrined with Lou Gerstner and Lee Iacocca in the annals of against-the-odds business turnarounds.

As for the rest of the industry, the big impacts for the future should
be, if I'm a vendor, equipment awards from winners of 700 MHz
spectrum. However, since the rollout requirements the 700 MHz spectrum
are so liberal, i.e., stretched out over several years starting next
year when the television broadcasters cease using the spectrum, any
major equipment awards and deployments are still well over a year out
and will be stretched for three to four years after that. Compared to
motivated initial deployments of other networks and technologies in
wireless industry past that took between eighteen months to three years
from the time of spectrum being awarded, I'd be concerned to be a
wireless equipment vendor to U.S. carriers from a revenue perspective
for the next few years.

So, where's the money? Will there ever again be a need for the same
level of wireless technical field installation nomads, living on the
road for almost a year at a time, doing construction work to build
greenfield wireless networks when establishing coverage in newly won
spectrum was like staking settling land on a new frontier, or will
these people be recorded in history in a documentary style that recalls
the men who built landmarks like the Golden Gate Bridge, i.e., who
existed in a bygone era in the day when making $5 a day was considered
good pay? Being in the field building wireless networks wasn't
glamorous work and I wasn't one of them, but I know a lot of people who
nevertheless reminisce fondly on those times.

There's a lot of buzz out there on mobile social networking,
location services, mobile video, next generation bandwidth, quadruple
plays, ATC, mobile search, mobile advertising, open networks / Android,
wireless internet, etc. These options are so far, for the most part,
unrealized promises or "futures". Whatever the "it" ends up being, I
believe it will be something unique to wireless, rather than an
adaptation or migration of an existing service or capability from
another medium. "It" will also be something that has unique utility to
consumers that will primarily be useful to them when in a mobile state
and has limited value if it is substituted by a fixed version. "It"
will also be something that marketers will be anticipate, but that
which consumers will decide where the value resides. My vote for "it"
according to this criteria is for navigation and location services.

My stated goal is to publish one article a week. It turns out that
I'm achieving that goal, but on an asymmetric basis, i.e., a burst of
four or so articles every three or four weeks. I'll work on my level
loading going forward. I also intend on republishing some guest
articles from analysts I believe product unique, quality and non-widely
available analysis. I'm continuing to mull on the following topics
for future articles, besides the popular Sprint Nextel Watch series:
LTE deployment issues, 700 MHz post-auction analysis,
Motorola, and a suggested topic called Near Field Communications.

You may have to
check the sonicblues.typepad.com every now and then or subscribe to the
RSS feed to get fresher material.

April 18, 2008

Based on the intrinsic value of its spectrum holdings and its business operations, Sprint is still a steal at its current market cap.

Analysis

A recent article by Ben McClure in response to my blog post suggesting circling sharks around a wounded and bleeding Sprint reasoned that at the current market cap of around $18B and $6 and change a share this stock is not a good investment for bottom fishers. Mr. McClure writes:

"At a share price of $6.76, the company has a market capitalization of about $18.8 billion. Let's assign to Sprint Nextel a forward PE ratio
of 16, about the same PE ratio attached to Verizon. Based on that
multiple, Sprint Nextel will have to produce about $1.2 billion net
income or an EPS of
41 cents per share in 2008 if share prices remain constant. Yet, Wall
Street earnings estimates say that this number is well beyond reach.
Analysts say the company is on track to produce just 8 cents per
share in 2008 according to Market Watch."

Clearly, by this reasoning, Sprint, at a PE ratio of 16 and earning of 8 cents a share would indicate a share price of around $1.25. The underlying argument is that there's still substantial downside risk to Sprint. If Sprint were to go as low as $1.25 a share, this would equal a market cap of $3.5B! I'm sure one could construct an argument for the share price going even lower by adjusting the PE ratio to, say, 12, to reflect that Sprint underperforms relative to its peers.

Another calculation, though, would set Sprint's value much higher, looking at the piece parts. A rough calculation valuing Sprint's spectrum holdings at $1 per MHz - pop for iDEN spectrum at 800 / 900 MHz, $.75 per MHz - pop for PCS spectrum at 1.9 GHz, and $.50 per MHz - pop for WiMAX spectrum at 2.5GHz, easily yields an intrinsic value of over $10B. By being even more conservative and downgrading the value of Sprint's spectrum holdings by 20% to $8B still leaves one to argue that, with current debt being factored in, the remaining bricks and mortar, equipment, iDEN, long distance and IP / wireline, CDMA and WiMAX businesses together are worth only $8 - $10B at the current stock price.

By my reckoning, the depressed stock price is in large part due to historically and entrenched (below the current CEO) decision making, leadership and management, manifested in customers so dissatisfied that they leave the network, despite network quality and reliability being good. On the iDEN side, dissatisfaction is compounded by ongoing uncertainty of iDEN in Sprint's long term architecture (iDEN has no evolution to broadband), despite well intentioned and genuine best efforts on the part of CEO Dan Hesse to reassure customers that iDEN will be around for the foreseeable future.

Sprint, in the eyes of investors and customers, at this point has approval ratings like the Bush Administration: They have screwed up in such an extreme manner for so long that the negative sentiment has become so deep-rooted that it's hard to see how any recovery is possible.

In the case of Sprint, though, it really is hard to see how conditions can get worse. Hesse has already prepped investors' expectations by forecasting a large subscriber loss for first and second quarter, 2008, as iDEN continues to bleed perhaps unprecedented subscribers in the wireless industry.

Sprint does not have timeto wait for Qchat to become operational over the next year. Sprint also doesn't have time to wait for the WiMAX build out to mature over the next three years. I believe that Hesse understands this situation.

The short term key is iDEN. The problems on the iDEN network are exacerbated when you realize that when subscribers churn off, they don't do it in one's or two's at a time, but in groups, due to the unique group call capability of push-to-talk that business customers love. An optimist would see though that group calling is still a differentiated technical capability that Sprint controls with iDEN and Qchat, and that, if Hesse is able to turn around iDEN, then the heavy churn can drop as dramatically as subscribers choose to stay in groups instead of leaving.

ConclusionWhen looking into the abyss, it's easy to imagine an infinite drop into the darkness. On the other hand, the drop may only be a few feet. I believe iDEN will stabilize before the end of 2008. When that happens, the emotion depressing Sprint's stock price will burn off and the price will bounce back. So, for now, if a suitor can put together the financing in the current credit environment, now is the time to acquire Sprint. I'm reaffirming my previous position that Sprint is a steal at its current market cap.

As I wrote previously, the longstanding feud between Sprint and iPCS had another chapter written on March 31, 2008, when an Illinois court ruled in favor of iPCS in its longstanding dispute with Sprint over iPCS claims of exclusivity violations resulting from the Sprint Nextel merger. With this dispute finally over and the new affiliate agreement iPCS signed recently with Sprint, perhaps both companies can focus more on the future and satisfying customers.

The lack of iDEN only handsets on the immediate horizon gives mixed
messages to investors and customers as to Sprint's commitment to the
iDEN network.

Analysis

It is troubling that Sprint Nextel announced a plethora of handsets at CTIA, but within these announcements, there were no new iDEN handsets. Sprint announced new iDEN models when support for iDEN was affirmed early in the first quarter of 2008. If Sprint were actively reviving iDEN and managing the technology, then couldn't we at least get a peek at the iDEN handset roadmap? The Samsung Instinct phone announced has a two month overhang until it's available in June. That implies that there's nothing in the pipleline for iDEN for the first half of 2008.

Conclusions

The lack of iDEN only handsets on the immediate horizon is puzzling and gives mixed messages to investors and customers as to Sprint's commitment to the iDEN network.

The lack of an announced Sprint multi-party deal at the CTIA show is not necessarily a sign that no deal will happen or that negotiations have failed.

Analysis

Speculation and the resulting disappointment on the part of wireless industry pundits and analysts from expectations of a big announcement regarding a blockbuster partnership between Sprint, Clearwire, Time Warner, Comcast, Intel, Google and possibly Brighthouse that did not materialize that this year's CTIA convention in Las Vegas was similar to the wishful thinking and attendant dismay of a child not getting candy in the checkout line. The "deal" may very well be in the works, and possibly imminent, but there was not much to read into the lack of an announcement at CTIA. To say that these deals, especially multi-party ones, are complicated, is an understatement. In fact, we should have been dubious of the deal if it was rushed just to make an arbitrary target CTIA announcement date. The rush would have made it a bad deal. The "final" deal, if and when it is announced, should be much more than term sheets; it should be detailed and signed-off and approved at board-level for all involved parties.